Changes to guarantee loan requirements a double-edged sword

One Melbourne broker says recent changes by some lenders to guarantor requirements for home loans will provide much-needed help to many first home buyers, but says brokers need to ensure borrowers are made fully aware of the pitfalls – or risk facing client backlash later on.

Late last year, ANZ amended their guarantor policies, removing certain restrictions for guarantors to include extended family members and many believe other lenders are likely to follow suit.

The changes mean a guarantor will no longer have to be a parent, sibling, or spouse of the borrower for a security guarantee and that potential guarantors are likely to be approved on a case-by-case basis.

Loan Market broker, Alexander Heifetz, (pictured) says family and security guarantee loans are available to help first home buyers and families entering the residential real estate market who need an additional asset to secure their property, but says the deals often have the potential to go sour.

He says the policy change will aid certain first home buyers with 'healthy incomes but limited savings' to enter the property market with help from guarantees who traditionally haven’t been allowed to put their support behind a low-deposit holder’s mortgage.

However, while he says he appreciates that it’s a difficult time for both lenders and first home buyers, brokers need to make sure they’re helping clients view guarantee loans as a last resort – because it’s brokers in the end who are likely to be blamed when things go wrong.

“It comes back to brokers – banks have a bunch of lawyers who will stand up for them, but brokers are the middle men and they’re the ones who will be crucified.”

He says most guarantee loans are a single loan secured by both properties: the property purchased by the first home buyer and guarantors' property.

“The benefit of this option is that there is no requirement to make a lender’s mortgage insurance payment - and you don’t have to demonstrate that a deposit you have was genuinely saved.”

Heifetz has already seen an increased level of interest among first home buyers, but warns that many fail to recognise the potential for family conflict.

“I try to avoid family guarantee – it has a lot of pitfalls and it can cause trouble in the family. Wherever it’s possible, people should try and find an alternative solution.”

I Agree with Ray. Solicitor Certifiacte is a good idea to save our back.

Martinon
24/01/2013 5:26:22 PM

I have never done a family guarantee loan where a solicitor's certificate was not required which has to add a little protection for the broker. Agree with all of the above though.

Ray-Perthon
24/01/2013 3:41:52 PM

I was shocked when I saw the new ANZ policy. My first thought was that major lenders KNOW if these deals go wrong the lawyers for the Guarantors will attack the channel with least funds available to fight back, that's us THE BROKER.

I don't care about any banks policy, any guarantee deal and I will be demanding a Solicitors Certificate to protect MY interests !!

Rachaelon
24/01/2013 11:19:25 AM

Yep, separate split for the Guarantee portion always! Diarise all notes, and save emails outlining the implications. Even if you do it face to face too- always put it in writing and save it!

Yes, always ask why no savings with high income, but there could be good reasons...

Mal Bartley BFA Finance Pty Ltdon
24/01/2013 10:30:54 AM

Nothing says BEWARE !! more than a high income earner who has saved nothing!!. Always a reason but ultimately it gets back to saying to the guarantor are you prepared to lose your property offerred as security? When occassionally confronted with these transactions I prefer to suggest limiting the 3rd parties liability by raising the required shortfall as a stand alone transaction in the guarantors name. This way there can be little doubt as to their understanding of their liability. Also it confronts the "What if" situation and confirms the guarantors ability to carry the debt in need. Their injection of funds can and should be supported by a second mortgage behind the buyers mortgagee.This in turn discloses the involvement of a 3rd party and limits further borrowings which could affect the primary borrowers ability to reduce and repay the incurred "moral" debt of the 3rd party.I say "moral" because we all know they intend to pay at the outset but things can change, like that high income for the length of the loan!

Disclosure, disclosure, disclosure and when the deal falls apart it will still be you the broker who is blamed!!!Got to love this industry!!Mal Bartley BFA Finance Pty Ltd

Coast Brokeron
24/01/2013 10:21:13 AM

I cannot see any issues with doing this type of Loan Structure aslong as you have a clear channel of discussion between all parties especially the Guarantors and you meet with them personally. Also Diary note all discussions with the Guarantors. I also structure the finance as 2 separate loans so the borrowers can focus on the smaller loan that is technically the amount secured by the Guarantors can be cleared quicker by the Borrowers. Never had an issue.